BusinessWeek- t has never been more popular to bet against stocks. Once the realm of a few specialists, the financial alchemy of turning a garbage stock into gold by shorting it has moved into themainstream: The strategy is now employed routinely by thousands of individual traders, hedge funds, mutual funds, and others.
Short interest on the New York Stock Exchange hit 3.1% of all listed shares in May, the highest level since 1931, according to research firm Bespoke Investment Group.
Just what is a “short” anyway? Liken it to borrowing a pound of sugar from a neighbor, selling it to someone else at full price, and then replacing your neighbor’s sugar with a cheaper bag you snagged at a two-for-one sale the following day. You have just turned a short profit on the sugar. If a trader thinks a company is going to perform poorly, he can borrow the stock in question and sell it. If the price dips as expected, the trader buys the stock back at a discount when it’s time to return the borrowed shares to their owner.
